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Here’s what you need to know today

• Brickworks and Soul Patts (formerly Washington H. Soul Pattinson) have announced a $14 billion merger. The two companies have been partners for over 50 years, each owning a piece of the other, but they will now fully merge. Brickworks was up 28% while Soul Patts was up 16%. (AFR)
  
  

• Bad news for Australian iron ore giants BHP, Rio Tinto and Fortescue as Chinese demand for steel dropped to its lowest level in 8 years. Demand is falling as China’s economy slows, the property market struggles to recover, and the trade war creates uncertainty over business investment. All 3 mining giants were down more than 1% on the news yesterday. (AFR)
  
  

• Mineral Resources was down 12% while Liontown Resources and Pilbara Minerals were down 8% as the market continues to sell off lithium producers. There is concern that the lithium market is in oversupply, which will continue to be a drag on the lithium price. (Capital Brief)
  
  

• Greens Senator Dorinda Cox has announced she is defecting to the Labor Party. The Western Australian Senator’s move leaves the Greens with 10 Senators and increases Labor’s count to 29. (Capital Brief)
  
  

• US President Trump seemed to walk back his claim that China had “totally violated” their trade agreement, saying “I’ll talk to President Xi and work it out”. China’s Ministry of Commerce remained strong in its rhetoric, saying China will "take forceful measures to safeguard its legitimate rights and interests". (Newsweek)
  
  

• Australian online furniture retailer Koala has pulled plans for a $100 million listing on the Australian share market. The company and its bankers decided now was not the right time to IPO, and plan to wait out Trump’s tariffs as a private company. (AFR)
  
  

• Ukraine have executed one of their most audacious attacks of the war. After 18 months of secretly smuggling drones into Russia, Ukraine launched a coordinated assault on Russian airbases, including some as far away as Siberia (6,000km from Kyiv), and destroyed 41 Russian bombers. Military commentators have called this attack Russia’s ‘Pearl Harbour’. (AFR)
  
  

• After an apparent wave of anti-Trump sentiment hit elections in Germany, Romania, Canada and Australia, a recent election in Poland has seen the pro-Trump candidate succeed. Karol Nawrocki, a former boxer with no previous political experience, won 50.9% of the vote and will become Poland’s next President. (Al Jazeera)

What the…?

If you think of a quintessential Australian chocolate biscuit, chances are you’d think of Tim Tams. Turns out you are not alone. Recent data has come out showing Tim Tam has gone from strength-to-strength, growing its market share by 5.8% in the past 12 months.

Tim Tams now own 41% of the Australian chocolate biscuit market. Now the question for Arnott’s Biscuits and its private equity owner KKR is, can Tim Tams go global? (The Australian)

Investing is a lifelong journey

Here’s what you can learn today.

Using leverage in the stock market

Community Question: Is leverage in the stock market a good idea? How can I do it?

We put this question to Ellie Fordham, financial adviser at Verse Wealth

Using leverage can accelerate growth in any investment strategy, and the most popular way to do this in Australia is investing in property. Leverage provides scale in the market which can assist with increasing investment returns. It’s also popular in Australia as using debt to purchase income producing assets can provide you with a tax deduction on interest costs.

Investing in property provides easier access to debt (usually via a bank), because the bank will use the security of the property to provide the loan, however it requires a bigger deposit (usually 20% of the purchase price).

You can use a much smaller deposit to utilise debt and invest in the stock market, and it also allows you to manage the amount of debt you take on. In comparison when you are investing into property the purchase price of the market will determine the deposit you need and therefore the debt you take on.

However, using leverage to invest into the stock market is not for everyone. It significantly amplifies the risk you are taking on. Given the volatility associated with the stock market, investing in these assets combined with debt requires you to have a long-term investment strategy, as unwinding the strategy can magnify losses. It is vital that you have sufficient income to continue to fund loan costs throughout the strategy.

How to do it?

It’s not as common to access debt to invest into the stock market, but there are a number of ways you can do it. There are many geared ETF’s and managed funds available which allow you to access the benefits of leveraged investments, without having to manage the loan yourself. The fund manager takes on the debt, makes the investments and funds the interest costs, which are all deducted from your returns.

Margin lending has in the past been a popular tool for borrowing to invest but also comes with its own risks. This allows you to utilise your existing investments as security to take out a loan and purchase more investments, but there is a limit of how much you can borrow, known as the loan to value ratio (LVR). This is often set at 70%. If your share portfolio drops in value, this causes the loan to value ratio to increase (for example to 80%) and the difference (or the margin) needs to be made up – either through paying down debt or increasing your security (stocks).

The use of debt in any investment strategy always needs to be evaluated in line with your personal financial objectives, investment time frame and exposure to risk. Leverage in stock markets can be a very useful tool to grow wealth but can unwind many years of investment strategy when not managed correctly.

Interested in speaking to a financial adviser? Fill out the form on our website and we’ll match you with one of our hand-picked advisers for a free, no-obligation initial meeting.

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